Percolating Profits
Specialty coffee and tea drinks find receptive customers in noncommercial segments.

By Jamie Popp, Senior Editor

Beverage menus featuring espressos, lattes and chai teas are the norm at a growing number of noncommercial operations, natural outgrowths of the need to meet retail competition head-on. The good news is that many consumers happily pay for pricey specialty beverages that carry high profit margins.

“Typically, specialty coffees—including cup and lid—cost operators 25 to 30 cents per cup. They can charge $1.50 for regular coffee and more than $3.00 for a latte,” says Joe Pawlak, vice president at Technomic, Chicago.

While coffee still outsells tea in noncommercial settings, tea also offers attractive margins, says Joe Simrany, president of the Tea Association of the United States of America, New York City. “A little tea goes a long way and costs pennies per serving,” he adds.

Increasing coffee and tea sales often is a matter of upgrading systems and offering premium products, according to Sherri Johns, president of Whole Cup Coffee, a Portland, Ore.-based company providing barista training to specialty cafes. Pod or single-cup coffee machines are one way to expand coffee programs without adding personnel.

“We’re seeing a trend in single-cup brewing techniques,” says Bill Mitchell, director of national program development of corporate services at Sodexho USA, Gaithersburg, Md. “There are competing technologies and it’s not clear which will be the winner, but overall there is big growth in single-cup sales.”

Richard Wyckoff, president of refreshment services and business-and-industry (B&I) facility services at Philadelphia-based Aramark Corp., agrees, noting that many of its accounts lease single-cup brewing units. Specialty coffees now account for more than 50% of Aramark’s B&I coffee revenues. Five years ago specialty brews represented just 10% of sales, according to Wyckoff.

Flavor of the Week
Flavored coffees also are popular in hospitals and colleges. Kona Coast Cafe at New Hanover Regional Medical Center in Wilmington, N.C, increases sales by offering a new flavor every week to complement its house blend and dark roast, says Dean Miller, foodservice coordinator. Snickerdoodle (cinnamon-sugar-flavored) coffee produced by a local roaster is the most popular.

Moravian College’s Jazzman’s Café, one of Sodexho USA’s contract-dining concepts, offers as many as six flavored coffees and sells as many as 1,000 cups each week. While regular coffee remains the top choice, according to Mark Kopenhaver, general manager of dining services at the Bethlehem, Pa., college, hazelnut and chocolate-flavored coffees are popular.

“The consumer doesn’t want a cup of plain black coffee,” says John Culver, vice president and general manager for foodservice at Seattle-based Starbucks Corp., operator of 8,569 units nationwide. “They want a 2% vanilla latte extra hot. What we’re seeing is the consumer demanding more differentiation or specialization of their drinks.”

Vanilla is the No. 1 flavor shot, he says, with mango and raspberry flavors popular in frozen drinks.

The Specialty Coffee Association of America (SCAA) reports that 12% of all prepared coffee beverages sold are cold or iced. According to its research, SCAA says serving coffee on ice or as blended frozen drinks can create margins of 60% or more.

Going Green
Seattle-based tea-market researcher Sage Group International LLC forecasts U.S. tea sales will reach $10 billion by 2010, versus $5.1 billion in 2003. The expected drivers of that growth are aging baby boomers drawn to tea by reports extolling the beverage’s high levels of health-promoting antioxidants.

“One of the biggest things to happen to tea during the past decades is its association with good health,” says Simrany. “Many hospitals are serving tea as the beverage of choice.”

Florida Hospital Orthopaedic Institute, part of Winter Park Memorial Hospital in Winter Park, Fla., offers patients and visitors green tea in addition to flavors such as raspberry, lemon and chamomile, says Bobbi Grosso, the hospital’s concierge. The institute’s daily afternoon tea service includes fruit, sandwiches, scones, petit fours and cookies.

Sharon Cox, director of food and nutrition services at New York City’s Memorial Sloan Kettering Cancer Center, says green tea was added to menus two years ago as a result of positive health studies. The medical facility now adds tea to its gift baskets based on consumer demand.

The American Institute for Cancer Research in Washington, D.C., finds that 15% of consumers say they drink green tea on a typical day, but the number of chains that added tea drinks this year evidences rising demand. Starbucks added Green Tea Frappuccino and Shaken Green Iced Tea; Emeryville, Calif.-based Peet’s Coffee & Tea menus a mixture of green tea and limeade called Jasmine Lime Iced Cooler.

Chai tea (combining tea, milk and ground spices) is the most common specialty tea drink exceeding even green varieties, consultant Johns says. And its popularity is increasing. Like cappuccinos and lattes, chai drinks are a staple at the 7th Street Cafe on the Lewisburg, Pa., campus of Bucknell University, where Pittsburgh-based Parkhurst Dining Services handles foodservice.

Kona Coast’s Miller says tea drinkers also are asking for more organic chai tea at its facility.

According to a recent report from Friedman School at Tufts University, Medford, Mass., overall sales of tea increased 10% from 2003 to 2004 while chai sales increased 43%.

“There are new chai teas on the market all the time,” Johns says.

Selling R&R
Drawing on the success of coffee moguls such as Starbucks, the business-and-industry (B&I) segment is taking the lead in creating “experience rooms” for tea and coffee drinkers, says Technomic’s Joe Pawlak.

Both Aramark and Sodexho USA report that patrons at their accounts chill out on site rather than walking down the street for an afternoon espresso.

“We have to be able to provide a coffeehouse experience in the office and break room that is easy to access with products that fulfill demands for convenience,” says Richard Wyckoff, president of refreshment services and B&I facility services for Aramark Corp.

Bill Mitchell, director of national program development of corporate services at Sodexho USA, says lounge-type rooms for employees to enjoy indulgent coffee drinks such as chocolate-strawberry lattes are becoming more popular at its business accounts.

Fair Is Fair
Like sustainable-agriculture programs, fair-trade coffees and teas have strong followings on college campuses. Promising farmers and workers a living wage (a minimum of $1.26 per pound of beans regardless of market fluctuations), free-trade products can be costlier, but many students consider the social implications more important than menu price.

Café Academia, opened by the business club at Greenfield Community College, Greenfield, Mass., purchases beans that are certified fair-trade and organic from a local roaster, says Ben Riseman, club president. The cafe’s coffee is priced at $1.50 for a 20-ounce cup—higher than elsewhere on campus—but students don’t mind.

“Compared to what’s sold in the cafeteria, the quality is better,” he says. “We have our own signature brand that is high-powered. The people who come here don’t really care for extravagance and flavors. They just want to be awake in class.”

Trillium Express, a newly renovated cafe on Ithaca, N.Y.-based Cornell University’s campus, sells only fair-trade brews. This is the dining hall’s first foray into the fair-trade market, and so far Victor Young, retail general manager, says the extra cost for 100% fair-trade coffee hasn’t turned students away. In fact, it’s planning to use the cafe to educate more students about the benefits of fair-trade programs.